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-Mckinsey Quarterly

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The original industrial revolution ,hatched in themid1700s,took two centuries to gain full force .

Britain the revolutions birthplace ,required 150 years todouble its economic output per person

United states took more than 50 years to double its GDP

per capita. When China and India industrialized, the two nations

doubled their GDP in 12 and 16years respectively.

Moreover Britain and United states began theindustrial populations of about ten million whereas China

and India had one billion populationThus the two leading emerging economies

are experiencing roughly ten times the economicacceleration of the industrial revolution ,on 100 times thescale resulting in an economic force that is over 1,000times a big.

The industrial revolution- most important events in economic history

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-emerging markets hold the key to long term success .

It involves lot of complexity to tap these opportunities.

Despite greater size ,larger capital bases, superior product

technology and more sophisticated marketing technology.They are struggling to hold their own against localupstarts(local competitors). That anxiety is reflected in theircompanies performance in emerging markets.

In 2010,100 of the worlds largest companies headquartered in

developed economies derieved just 17% of their total revenuefrom emerging marketsthough those markets accounted for36% of global GDP and are likely to contribute more than 70%of global GDP growth between now and 2025

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The challenges which prevail in tapping emerging closely resembles a decathlon,where success comes across multiple sportsSitting out an event isnt an option ; competing effectively means mastering avariety of different capabilities in a balanced way. As with a decathlon, there is nosingle path to victory.In emerging markets ,companies ,like athletes, must learn to make trade-offstaking in account their own capabilities and those of competitors.They must choose where it makes sense to differentiate themselves through worldclass performers and where it is wiser to run withor ideally , a little ahead of the

pack.Both the rewards for success and the cost of failurewill be large

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For centuries ,less than 1% of the worlds population enjoyedsufficient income to spend it on anything beyond basic daily needs.

In 1990s the number of people earning more than $10 a day ,thelevel at which households can contemplate discretionary purchasesof products like refrigerators or television ,was around 1billion out offive billion population.

But over the past two decades, the urbanization of emergingmarketssupported by long-term trends such as the integration ofperipheral nations into the global economy, the removal of tradebarriers, and the spread of market-oriented economic policieshaspowered growth in emerging economies and more than doubled theranks of the consuming class, to 2.4 billion people. By 2025, MGI

research suggests, that number will nearly double again, to 4.2billion consumers out of a global population of 7.9 billion people.2For the first time in world history, the number of people in theconsuming class will exceed the number still struggling to meet theirmost basic needs.

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By 2025, MGI estimates, annual consumption in emerging markets will rise to $30trillion, up from $12 trillion in 2010, and account for nearly 50 percent of the worldstotal, up from 32 percent in 2010

As a result, emerging-market consumers will become the dominant force in the global

economy.

In 15 years time, almost 60 percent of the roughly one billion households withearnings greater than $20,000 a yearwill live in the developing world.Example- China already has overtaken the United States as

the worlds largest market for auto sales.

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By 2025, more than half of the worlds

population will have joined theconsuming classes, driving annualconsumption in emerging markets

to $30 trillion. Global companies mustmaster ten key disciplinesor miss the

defining growth opportunity of ourtimes

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1.Target urban growth clusters

2.Anticipate moments of explosive growth.

3. Devise segmentation strategies for local relevance & global scale

4. Radically redeploy resources for the long term

5. Innovate to deliver value across the price spectrum

6. Build brands that resonate & inspire trust

7. Control the route to the market

8. Organize today for the markets of tomorrow

9. Turbo charge the drive for emerging market talent

10. Lock in the support of key stakeholders

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Throwing accurately. Companies must aim theiremerging-market activities atthe right opportunities. That involves surgically targeting urban growth clusters,

anticipating moments of explosive growth, and carefully balancing localrelevance and global scale. The digitization of the emerging world is generating

increasingly rich data sources that can guide such efforts.

Winning a decathlon requires an athlete to master ten events, webelieve winning in emerging markets requires companies tomaster these ten capabilities. Like the events in a decathlon,

they can be grouped into three types of activities:

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Jumping in. As multinationals leap into action in the emerging world, they facethe potential for big gains or losses. The next four capabilities reflect thesemoments of truth: aggressively redeploying resources to seize nascent

opportunities, creating product portfolios, crafting brands, and building a go-to-market system that delivers what emerging-market consumers need, wherethey want it. Success in these markets demands cutting-edge technology andaggressive investment in processes tailored to local conditions.

Running the distance. The final three capabilities underscore the fact thatcompeting effectively in emerging markets is a long-term challenge. Globalorganizations must rethink structures and management processes to move

nimbly in unfamiliar environments while retaining scale advantages. Theymust fashion new models to attract, retain, and develop scarce emerging-market talent and forge new relationships with stakeholders to buildsustainable businesses.

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Most multinationals make decisions at the country rather than city level inemerging markets. Example-Wal-Mart opened its first store in Rogers,

Arkansas n now it is known to be the biggest retail giant .

Given the diversity of consumer preferences, purchasing power, and

market conditions in emerging societies, a failure to acknowledge theimportance of cities can be a fundamental strategic error. E.g. China has56 different ethnic groups who speak 292 distinct languages ,Indiaembraces 20 official language ,hundreds of dialects and four majorreligious traditions. So they have diverse taste in electronics, fashionand food

Strategies based on clusters of fast-growing middleweight cities aremore effective than attempts to achieve blanket coverage of an entirecountry or region or to chase growth in scattered individual cities.Theemphasis should be on going deep before going wide .

1.Target urban growth clusters.

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The results of switching to a cluster focus can be dramatic- in India,one leading consumer company recently cut costs in half byconcentrating on 8 large urban clusters rather than attempting to plotstrategy for different 200 cities

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In emerging markets, timing matters as much as geography.

Demand for a particular product typically follows an S-curve: there isa warm-up zone as growth gathers steam and consumer incomes

begin to increase, a hot zone where consumers have enoughmoney to buy the product, and a chill-out zone in which demandeases.

Per capita income is the critical variable, but the takeoff point and

shape of the S-curve vary greatly between products. For e.g. low unitcosts like snacks and bottled drinks accelerate at relatively earlystage of the income curve ,beauty products somewhat latter ,andluxury products such as fashion and fine wine ,later still.

2. Anticipate moments of explosive growth.

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Multinationals must determine how to refine their product or service offering so thatthey will appeal to local tastes, be affordable & give the company anopportunity to achieve reasonable scale in a timely way.

Deciding how & how much to cater to local preferences requires a deep

understanding of consumer demographics, preferences, & behaviour within targetsegments.

A careful segmentation strategy helped Frito-Lay capture more than 40% of theIndian branded-snacks market.

Frito-Lay also created Kurkure, a cross between traditional Indian-style street food &western style potato chips that represented a new category in India as well as inother countries.

Critical to Kurkure success : Attractive pricing & combining local feel withscalable international packaging.

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To win in emerging markets, developed-market companies must be willing toembrace big changes fast; those unable to reallocate resources radically risk adrubbing by local competitors.

Research shows that emerging-market companies redeploy investment across

business units at much higher rates than companies domiciled in developedmarkets.

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Emerging-market companies are built forspeed. They are designed to serve

the rapidly changing needs of middle-class consumers in their homemarkets & other emerging societies.

Diageos acquisition of a majority stake in Chinas Shuijing-fang boosted theBritish beverage company's distribution reach & ability to supply Chineseconsumers with the white liquor that is so popular there.

DANONE's purchase in Russia of Unimilk, which allowed the French foodgiant to offer more competitive products at wider variety of prices.

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Emerging markets offer an opportunities to design & build products & servicewith innovative twist on best-in-class equivalents in established markets. e.g.LG Electronics.

LG Electronics

After 1990 foreign investment rules enabled the company to invest in local design& manufacturing facilities.

Local developers, recognised that many Indians used their TVs to listen to music.Hence LG introduce new models with better speaker.

To keep price competitive, the company swapped expensive flat-panel displaysfor less costly conventional cathodetubes.

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Whether a company sells basic products or services tochallenge low-cost players or seeks to entice consumers to

adopt new products & services comparable to globalOfferings, competing effectively often requires innovating &localising, while redesigning Product lines, serviceoperations & supply chains.

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Emerging consumers are younger with 63% aged 35 or under in 2010, versus43% in developed countries.

Emerging consumer move from rural villages to cities, they embrace new ideasand ways of living, placing in flux not just their buying preferences but also their

very identities. They are highly receptive to effective branding efforts.

In emerging markets, it is critical for products to be included in the initialconsideration sets of consumers.

Chinese consumers consider an average of three brands & end up purchasing

one of them about 60% of the time. In US & Europe, consumers consider at least4 brands & end up selecting one from their initial considerations sets only 30-40%of the time.

The intensity of emerging consumers focus on the initial consideration set favoursbrands with high visibility and an aura of trust.

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Locally focused campaigns have the added advantage of accelerating networkeffects and making it easier for firms to generate positive word of mouthacritical prerequisite for emerging market success.

Building trust requires careful scrutiny of brand message & delivery.

Mobile and digital channels, including e-commerce, offer additionalopportunities to build trust and brand awareness and to engage withcustomers.

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Our research underscores the importance in emerging markets of managinghow consumers encounter products at the point of sale.

In China, 45 percent of consumers make purchasing decisions inside shops,compared with just 24 percent in the United States.

Almost a quarter of the Chinese consumers we surveyed said in-storepromoters or salespeople greatly influence their decisions. Also it was found thatChinese who purchased high-end consumer electronics items visited stores upto ten times before deciding what to buy.

Managing the consumers in-store experience is an enormous challenge,

especially in middleweight cities where the biggest growth opportunities lie.

The problem is the fragmented nature of the retail landscape in emergingmarkets; e-commerce penetration currently lags behind Western levels,supermarkets remain a relative novelty, and consumers still make mostpurchases from ubiquitous mom-and-pop shops.

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Multinationals should be prepared to build much larger in-house salesoperations in these countries and to devote far more time and energy thanthey do in their home markets to categorizing and segmenting sales outletsand to monitoring the quality of the in-store experience.

Coca-Cola, long active throughout the developing world, goes to greatlengths in those markets to analyze the range of retail outlets, identify thehighest-priority stores, and understand differences in service requirementsby outlet type. For Each category Of outlet, Coca-Cola generates a pictureof successa detailed description of what the outlet should look like andhow Coke products should be placed, displayed, promoted, and priced.

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In theory, global companies should enjoy substantial advantages over localrivals, including shared infrastructure and protection against individual country andcurrency risks.

But in practice, As global companies grow bigger and more diverse, however, the

costs of coping with geographic and product complexity rise sharply.

Less than 40 percent of the executives at the firms we surveyed said they werebetter than local competitors at understanding the operating environment andcustomers needs.

Large multinationals can reduce this globalization penalty by rethinkingorganizational structures and processesfor example, focusing on a few keymanagement processes for which global consistency is advantageous, whileallowing variability and local tailoring in others, and clarifying the role of thecorporate center.

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o IBM, for instance, radically revamped its functions in Asia, moving humanresources to Manila, accounts receivable to Shanghai, accounting to KualaLumpur, procurement to Shenzhen, and customer service to Brisbane. Otherglobal firms have moved core activities closer to priority markets.

o ABB shifted the global base of its robotics business from Detroit toShanghai. Dell created region wide functional centers in Singapore.

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Unskilled workers may be plentiful in emerging societies, but skilled managersare scarce and hard to retain.

In China, barely two million local managers have the managerial and English-language capabilities multinationals need.

Increasingly, local stars prefer working for local employers that can offer moresenior roles.

Some global companies have tried to address their emerging-market talentproblem by throwing money at it; one leading bank reports paying senior staff in

Brazil, China, and India almost double what it does in the United Kingdom.

But, Beefing up salaries is, at best, a partial solution. Global firms mustdevelop clear talent value propositionsemployer brandsto differentiatethemselves from local competitors.

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E.g.: In South Korea, LOral established itself as the top choice for femalesales and marketing talent by creating greater opportunities for brandmanagers, improving working hours, expanding the child care infrastructure,and adopting a more open communications style.

Other Western firms, such as Motorola and Nestl, have burnished theiremployer brands by building relationships with employees families.

We believe many multinationals should aspire to multiply the number ofleaders in emerging markets tenfold, and to do so in one-tenth of the timethey would take back home.

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Successful businesses need the support of stakeholders in government, civilsociety, and the media (increasingly shaped by online commentators).Managing these relationships effectively can have a huge impact on acompanys market access, ability to engage in merger or acquisition activity,

and broader reputation.

Global companies must devote far more time and effort to building such supportin emerging markets than they would in developed ones. Senior executivesshould make a systematic effort to identify key regulators, community leaders,and business partners and to understand their needs.

They also must ensure that public-affairs and external-relations teams are aswell staffed in emerging markets as in markets back home.

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Amways success in China illustrates the benefits of effective stakeholdermanagement.

In the early 2000s, the US-based direct-sales giant was almost declared an

illegal business in China for violating a 1998 ban on direct selling. Amwayssenior executives made numerous visits to Beijing to get to know senior leadersand explain the companys business model. The company also demonstratedits commitment to China by opening stores countrywide, while investing morethan $200 million in China-based manufacturing and R&D centers.

In 2006,the Chinese government reshaped the regulation of direct sales.

Today Amway is Chinas second-largest consumer product business.

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The decathlon is a combined event in athletics consisting of tentrack and field events.

The word decathlon is of Greek origin, from (dka, meaning"ten") and (thlos, or , thlon, meaning "feat").

Events are held over two consecutive days and the winners aredetermined by the combined performance in all. Performance is

judged on a points system in each event, not by the position

achieved. The decathlon is contested mainly by male athletes, while female

athletes typically compete in the heptathlon Traditionally, the title of "World's Greatest Athlete" has been given to

the man who wins the Olympic decathlon. This began when King

Gustav V of Sweden told Jim Thorpe, "You, sir, are the world'sgreatest athlete" after Thorpe won the decathlon at the StockholmOlympics in 1912.

The current decathlon world record holder is American Ashton Eaton,who scored 9,039 points at the 2012 United States Olympic Trials.

http://en.wikipedia.org/wiki/1912_Summer_Olympicshttp://en.wikipedia.org/wiki/1912_Summer_Olympics

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